This article was originally published on Forbes.com on January 18, 2022.

Supply chain issues, COVID, rising prices, and labor shortages all made for a challenging holiday shopping season for retailers. But if there was a bright spot to be found it was a new buying trend that's quickly exploding in popularity: Buy Now Pay Later, also known as BNPL. BNPL is what folks of a certain age used to call layaway. BNPL allows customers to make large purchases and break the payments into smaller, less painful, interest-free chunks. 

Fintech companies like PayPal, Klarna, Afterpay, and Affirm allow eCommerce and brick-and-mortar retailers to provide the BNPL services to their customers, regardless of size. 

This option is wildly popular with the younger demographic; the option was the go-to for about 1 in 5 holiday shoppers, 22% of which were Gen-zers. According to Afterpay, between black Friday and Cyber Monday, 11% more GenZ customers used BNPL compared to last year. 

Spending on BNPL in the US alone has increased by 230% in the last year and continued through the holiday shopping season.

Customers are more likely to make more impulse purchases when BNPL is offered. And data shows that people spend more and come back as a customer when BNPL is offered. Retailers partners with Klarna have seen a 30% increase in conversion rate and a 41% increase in order value.

However, late fee penalties and missed payments can have an adverse effect on customers’ credit scores. 34% of customers who use BNPL have missed one or more payments, according to a survey by Credit Karma. People who max out their credit cards may turn to BNPL, which will cause them to sink further into debt. According to C+R Research, about 57% of people who have used these services report making a purchase they regret because it was too expensive.

The sector is also largely unregulated in the United States. Regulation is increasing in countries like the U.K. This has left Swedish firm Klarna to be stricter with its lending requirements.

Despite the risks, the popularity of BNPL will continue to grow. According to Juniper Research, consumer BNPL spending is projected to nearly quadruple, increasing 274%, between 2021 and 2026.

Photo by CardMapr on Unsplash